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Different Definitions of "Rural" Can Alter Research and Effect Distribution of Funding Sources

Published by Peter Lawrence on Monday, February 26, 2024 - 12:59PM

Housing and community development stakeholders agree that rural areas face many obstacles, but the definition of what constitutes a rural area often differs. In Search of Rural, How Varying Definitions Shape Housing Research, a new report by the Joint Center for Housing Studies (JCHS) of Harvard University, categorized 11 different definitions of "rural." The research finds there is no standard definition of "rural" used in federal policy or housing research, and how a rural area is defined can affect the federal funding an area may receive.
Further, how rural is defined can affect how areas are treated under U.S. Department of Housing and Urban Development (HUD) and U.S. Department of Agriculture rural housing and community development programs as well as tax incentives such as the new markets tax credit (NMTC) or proposed legislation affecting the low-income housing tax credit (LIHTC), and the opportunity zones (OZ) incentive. 

Defining Rural Areas

The report examined the different definitions of rural, splitting them into four categories: 

  • Residual, 
  • Character, 
  • Perceptual, and 
  • Policy. 

Residual definitions are based on the absence of an urban space. This causes the definitions to be dependent on how populated and connected a place must be for it to be considered urban. Residual definitions are often used by researchers and policymakers due to their vast availability and universality but aren’t designed with rural areas in mind. Of the 11 definitions examined by the authors, the three considered residual are detailed in the table below.

Blog Graphic: Residual Definitions of Rural

Second in the report were character definitions, which use characteristics such as population levels, household and population density, commuting times, and land-use patterns to define a rural area. These definitions are more specific in their determinations of what is rural, which can be beneficial for policymakers and researchers looking to emphasize a certain aspect of rural life. There were three character definitions of rural in this study.

Blog Graphic: Character Definitions of Rural

Third, perceptual definitions rely on how residents self-label their own communities to identify rural areas. These definitions are usually derived from surveys and distributed across a zip code or census tract. The authors note these definitions are a good way to gauge how residents of a community view themselves in relation to their surroundings. There were two perceptual definitions used in this study.

Blog Graphic: Perceptual Definitions of Rural

Lastly, policy definitions are used primarily for policymaking or determining eligibility for specific federal programs. A policy definition could be used by a researcher to evaluate the effects or reach of a specific policy or program. For example, the Federal Housing Finance Agency (FHFA) uses a policy definition to ensure that mortgage liquidity and investment capital is available to lower-income families in rural areas as part of their Duty to Serve program. This definition is one of the two examples listed below.

Blog Graphic: Policy Definition of Rural

Data Compares Rural Areas to the U.S. Overall

A side-by-side comparison was conducted of these 11 definitions looking at their ability to measure the size of rural housing composition, the rural housing stock, rural demographic composition and housing challenges in the rural market in relation to the United States overall.

1. Size of the Rural Housing Composition

The total population of people living in rural areas ranges from 4.7 million to 109.5 million depending on the rural definition. This range accounts for 1.4% to 33.7% of the nation’s population. It was found that characteristic definitions have the lowest estimates for the size of the housing market. On the other hand, policy definitions produce the largest estimates of rural housing markets. Notably, all definitions show low rural housing populations and housing densities in comparison to the nation. 

Blog Graphic: Size of the Rural Housing Market by Defintion

2. Rural Housing Stock

Single-family housing dominates the rural housing stock with an average of 76.1% across all housing definitions. This is notably higher than the overall U.S. share of 67.4%. As a result, rates of multifamily housing are significantly lower than the national average of 26.3% with a minimum of 4.9% and a maximum of 12.2%. The average percent of manufactured housing is much higher than the overall U.S. percent at 15.3% and 6.2%, respectively. It ranges from 13.0% to 17.6% depending on the definition. The amount of the housing stock built before 1950 ranges from 14.9% to 22.9% based on the definition, with the U.S. overall average falling in the middle at 17%. Overall, home value and rent prices were lower than the U.S. national average. 

Blog Graphic: Housing Characteristics of the Rural Market by Definition

3. Rural Demographic Composition

Overall, rural states have less diversity, education and household income compared to national averages. They also had higher rates of homeownership and of individuals aged 65 and older. 

Blog Graphic: Demographic Characteristics of the Rural Housing Market by Definition

4. Housing Challenges of the Rural Market

The rural poverty rate ranges from 11.7% and 14.7% depending on the definition, while the U.S. overall average lies in between at 13.4%. Rural cost burdens and internet access was lower than the national average for all definitions. 

Blog Graphic: Housing Challenges of the Rural Market by Definition

JCHS Gives Reasoning Behind Variations of Data for Each Type of Definition

Using this analysis, JCHS analyzed potential policy implications based on the type of definition that was used. Overall, they found that characteristic definitions depicted smaller estimates of populations, land area and housing markets. This is because character definitions are initially characterized by their sparse or diffuse populations, lower densities and limited access to population or employment centers. For the same reasons, character definitions depict rural areas as being less diverse with lower levels of education and higher poverty rates. The fact that characteristic definitions have such limited classifications means that they might not capture the nuances of a community, but rather only the most extremely rural and small townscapes. The research found that areas on the urban fringe are also omitted from characteristic definitions. 

The study found that perceptual definitions depict double the amount of the population as character definitions. They also have lower poverty rates and higher housing and population densities in comparison to the other definitions. However, more research is needed on perceptual definitions to determine why people perceive their communities as rural.
Policy definitions depict the largest number of rural areas and housing markets. They have the largest population sizes because federal agencies are politically incentivized to serve a broader constituency, allowing their policies to reach more individuals. This is largely because federal policies are more politically tenable the more residents that they cover. Since policy definitions cover more ground to create political feasibility, they show higher rates of internet access and diversity while maintaining lower poverty rates. The study found that the larger the definition of "rural" is, the more demographically similar it becomes to the rest of the nation, as it likely begins to encompass denser and more affluent areas.

Residual definitions have the largest estimates for ranges of demographics and housing characteristics. They also varied the most widely for the size of housing markets because their definitions of "rural" are based on the varying definitions of "urban" among different organizations. Measurements of the housing market size fall in the middle of the road for residual definitions. Since the definitions of rural are highly dependent on other definitions of urban, the responses for this category varied the most overall. 

Significance in the Tax Credit Industry

Applicants for the NMTCs must self-identify whether a community development entity (CDE) identifies as rural. Though self-identification is a perceptual definition, counties touching an urban metropolitan statistical area are ineligible. CDEs must also demonstrate a strong track record of raising and deploying capital in their target markets to qualify. This is significant because rural developments in business investments set records in 2022. It should also be noted that 20% of qualified low-income community investments must be made to non-metropolitan areas according to the NMTC statute. Related legislation, the Rural Jobs Act, was introduced in the House of Representatives in July 2023 that would provide a separate pool of NMTC authority for rural areas. If passed, at least a quarter of the proposed $1 billion in allocations would be set aside for persistent poverty counties and high out-migration rural counties. 

House bills that would provide extra funding for rural OZs were also recently passed. The Small Business Jobs Act (HR 3937), which includes the Rural Opportunity Zone and Investment Act (HR 3906) was passed by the House Ways and Means Committee. The proposal designates 1,926 census tracts as rural OZs. In order for a census tract to be eligible for a rural OZ designation, it must be a rural persistent poverty census tract, which must be in a county in which more than 50% of the census blocks are considered rural and must meet a persistent poverty threshold of 20% or greater over the past 30 years based on data from the Census Bureau. As stated above, the U.S. Census Bureau relies on residual definitions to create their definition of "rural," meaning that these OZs depend on definitions of the term "urban" as defined by the Census.

Another example is the Affordable Housing Credit Improvement Act (AHCIA) of 2023 (H.R. 3238/S.1136), which contains provisions that would provide a rural basis boost for the LIHTC effective for properties placed in service after Dec. 31, 2021. While current law allows for an up-to-30% basis boost for properties located in a difficult development area (DDA), the AHCIA would expand this to include all nonmetropolitan counties and rural areas as defined by section 520 of the Housing Act of 1949. In section 520 of the Housing Act of 1949, the terms "rural" and "rural area" mean any open country, or any place, town, village, or city which is not (except in the cases of Pajaro, in the State of California, and Guadalupe, in the State of Arizona) part of or associated with an urban area and which: 

  1. has a population not in excess of 2,500 inhabitants, or
  2. has a population in excess of 2,500 but not in excess of 10,000 if it is rural in character, or
  3. has a population in excess of 10,000 but not in excess of 20,000, and
    1. is not contained within a standard metropolitan statistical area, and
    2. has a serious lack of mortgage credit for lower and moderate-income families, as determined by the Secretary and the Secretary of Housing and Urban Development.

This is a policy definition, which according to the JCHS report means that it may have a broader scope of what is considered rural.

What’s Next?

The implications of the different definitions in the term "rural" can be seen in the allocations of various tax credits. Though the intent of policy definitions is to cover as much ground as possible, it might inadvertently cause resources to be spread too thin and lack impact due to these definitions being broad in nature. On the other hand, narrow definitions such as character definitions can cause some rural communities to be overlooked. Residual definitions can show a wide array of impacts due to variations in the definition of "rural", while perceptual definitions vary based on each individual’s personal definition of rural.

According to the JCHS report, researchers and policymakers should consider the ultimate purpose or goal in selecting a definition of rural. Different definitions of the term depend on the conceptualization of what a rural community is comprised of. The report states for research and policy purposes, a definition of "rural" should place emphasis on the aspects of the rural community that it wishes to address. It should also be noted that organizations may be forced to use a certain definition of rural depending on the data that is available to them. JCHS emphasized that using a more limited definition of rural is better than excluding rural populations altogether.

Novogradac’s LIHTC, NMTC, and OZ Working Groups analyze proposed and current legislation that impact rural areas as it relates to their respective tax incentives–those wishing to learn more about how rural areas fare relative to the various housing and community development incentives should consider joining. Additionally, the Novogradac 2024 Affordable Housing Conference will be held in San Francisco from May 2-3. To register for this event and learn more about the latest housing legislation, click here

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